Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $20,000 and will be depreciated in an asset class that carries a CCA rate of 30%. It will be sold for scrap metal after 3 years for $5,000. The grill will have no effect on revenues but will save johnny’s $10,000 in energy expenses. The firm has other assets in this asset class. The tax rate is 35%.
a. What are the operating cash flows in years 1 to 3?
b. What are total cash flows in years 1 to 3?
c. If the is 12%, should the grill be purchased?
